The document discusses credit control methods used by the Reserve Bank of India (RBI) and the role of RBI. It outlines both quantitative and qualitative credit control methods used by RBI, including bank rate, open market operations, cash reserve ratio, statutory liquidity ratio, margin requirements, moral suasion, direct action, and rationing of credit. It then describes several key roles of RBI, such as being the sole issuer of currency notes, banker to the government, banker's bank, custodian of foreign currency reserves, lender of last resort, monetary authority, and credit controller. The document also provides an overview of RBI's monetary policy and how it can be expansionary or contractionary.

1. Sri Dharmasthala Manjunatheshwara
College ( Autonomous ) Ujire
MODERN BANKING MANAGEMENT.
Department of
Business Administration
Presenter :-
Ganesh Gouda
2nd BBA
R.No : 201011
Venue :
Classroom
Date of Presentation
17 JUNE 2022

2. Credit Control Methods
It is one of the important function of RBI for
controlling supply of money or credit. There are two types of methods employed by the
RBI to control Credit Creation.
• Quantitative Method
• Qualitative Method

3. 1. Bank rate.
2. Open market operations.
3. Cash Reserve Ratio (CRR).
4. Statutory Liquidity Ratio (SLR).
1. Margin requirements.
2. Moral suasion.
3. Direct action.
4. Rationing of credit.

4. It is the rate of interest at which central bank lends funds to commercial
banks. During excess demand or inflationary gap, central bank increases bank rate. Borrowings become costly
and commercial banks borrow less from central bank. During deflationary gap central bank decreases the
bank rate. It is cheap to borrow from the central bank or the part of the commercial banks which in turn the
Commercial banks also decreases their lending rates.
1. Bank rate.
Quantitative Method

5. The open market operations means buying and selling of
bonds and shares by RBI is open market. It is also called buying and selling of government
security by the central bank from the public and commercial banks.
2. Open market operations.

6. It is the ratio of bank deposits that commercial bank has to
keep with the central bank. At the time of inflation the RBI increases the rate of CRR,
similarly at the time of deflation RBI decreases the rate of CRR.
3. Cash Reserve Ratio (CRR).

7. Every bank required to maintain a fixed percentage of its
assets in the form of cash or other liquid assets called SLR. At the time of inflation the RBI
increases the SLR, similarly at the time of deflation RBI decreases the rate of SLR.
4. Statutory Liquidity Ratio (SLR).

8. Qualitative Method
It is the difference between the market value of loan and the security
value of loan. At the time of inflation the margin requirement value decreases by RBI for discouraging people
and commercial banks for approaching more and more amount of loan. On the other hand at the time of
deflation the RBI increases the value of margin just to encourage issuing of more amount of loan to the
commercial banks and general public.
1.Margin requirements.

9. It refers to written or oral advices given by central
bank to commercial banks to restrict or expand credit.
2. Moral suasion.
Sometimes the RBI directly takes action
against the commercial banks. It takes action to such type of commercial banks who are
not following the rules regulation of RBI. It cancels their registration or nationalization of
commercial banks.
3. Direct action.

10. It is the related to limiting the amount of
credit, which is issued by all the commercial banks. RBI fixes the size of
issuing the credit according to the requirement of the country.
4. Rationing of credit.

11. 1. Monopoly of Issuing Notes:
The Reserve Bank of India issues the currency notes (₹) in
India. Only RBI has the right to print the Indian money except for ₹1 rupee notes that are
issued by the Ministry of Finance. The Currency notes issued by the Reserve Bank are
recognized as legal money throughout the country.
Role of RBI

12. 2.Banker to Government:
RBI also works as a banker to governments.
Reserve Bank manages the government wealth, securities and banking transactions of the
government i.e operate the government’s deposit accounts, sells bonds, securities and
collects receipts of funds, makes payments on behalf of the government, etc. Rbi also
advises the government on economic and money decisions.

13. 3. Banker’s Bank:
Reserve bank is the central bank of all banks. RBI provides
efficient settlements of inter-bank transactions. All Banks maintain their accounts with RBI for maintenance
of transaction balances to get a short-term loan, re-discounting bills, and lend extra money to RBI.
4.Custodian of Foreign Currency Reserves:
The Reserve Bank maintains the foreign currency reserve in
India. RBI buys and sells the foreign currency to make payments for trade, provides currency for exchanges,
maintains the exchange value of Indian rupees v/s foreign currency, and deals with negative trade balance.

14. 5.Lender of Last Resort:
RBI acts as a lender of any bank in times of emergency
over financial difficulties i.e rescue banks by giving a loan to face an emergency. RBI is the last one who can
help in a difficult situation. This facility can be availed to any bank at a high-interest rate than normal.
6.Monetary Authority:
The main role of RBI is to control monetary policy. The
Monetary policy includes the instruments which decide how much money is needed to be supplied to the
economy in order to stabilize the price, maintain a good balance of payment, financial stability, control
inflation, etc

15. 7.Credit Controller:
Credit money is an important part of the supply of
money. The credit supply of money is controlled by the RBI with the economic priorities of the
government.
8.Issuer of Banking License:
As per Sec 22 of the Banking Regulation Act, only RBI can issue the
banking license. A bank cannot start operating without obtaining a license from the Reserve Bank Of India.

17. Monetary policy is a policy of monetary
authority of a country for controlling the supply of money in an economy. It is
simply the measures taken by the central bank of the nation (RBI) for attaining
macroeconomic objectives like consumption, inflation, liquidity, and growth.
RBI & It’s Monetary Policy
Monetary policy is of 2 types
 Expansionary policy
 Contractionary policy

18. Expansionary policy is the one that fuels
economic growth by increasing the money supply in the economy. It reduces the interest
rates, lower bank’s reserve requirements, and buying government securities by RBI for
stimulating activities of the business and lowering unemployment.
Expansionary Policy
Contractionary policy lower the rate of economic
growth in the country. It reduces the money supply in circulation by raising interest rates,
selling of government securities, and increasing the reserve requirements of banks.
Contractionary Policy

19. Recent Updation in the Monetary Policy 2020
 RBI monetary policy committee voted to keep the repo rate unchanged which will provide support to
the revival of economy.
 An additional liquidity at repo rate of about Rs. 10,000 crores have been announced by RBI to NHB
and NABARD. It will assist these sectors to overcome the liquidity crisis.
 RBI has raised the permissible loan to value ratio from 75% to 90% for loan approved for non-
agricultural uses against the security of jewellery and gold ornaments.
 RBI has not decided not to monetize fiscal deficit.
 It has decided to perform one year and three-year repos worth 1 lakh crore which will enables banks
in reducing lending rates.
 Bank deposits premium is raised from 10 paise to 12 paise for time being which do not influence the
balance sheets of banks.
 A 6% growth rate is projected for GDP in range of 5.5 – 6% in H1 and 6.2% in Q3.
 Cheque Truncation system will be extended all over the India as decided by RBI which will make
clearing of cheque faster.